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Monetary Policy Report - October 2022(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models Department1.1 Macroeconomic summary In September, headline inflation (11.4% annually) and the average of core inflation indicators (8.6% annually) continued on a rising trend, and higher increases than expected were recorded. Forecasts increased again, and inflation expectations remained above 3%. Inflationary surprises in the third quarter were significant and widespread, and they are the result of several shocks. On the one hand, international cost and price shocks, which have mainly affected goods and foods, continue to exert upwards pressure on national inflation. In addition to these external supply shocks, domestic supply shocks have also affected foods. On the other hand, the strong recovery of aggregate demand, especially for private consumption and for machinery and equipment, as well as a higher accumulated depreciation of the Colombian peso and its pass-through to domestic prices also explain the rise in inflation. Indexation also contributes, both through the Consumer Price Index (CPI) and through the Producer Price Index (PPI), which continues to have a significant impact on electricity prices and, to a lesser degree, on other public utilities and rent. In comparison with July’s report, the new forecast trajectory for headline and core inflation (excluding food and regulated items) is higher in the forecast horizon, mainly due to exchange rate pressures, higher excess demand, and indexation at higher inflation rates, but it maintains a trend of convergence towards the target. In the case of food, a good domestic supply of perishable foods and some moderation in international processed food prices are still expected. However, the technical staff estimates higher pressures on this group’s prices from labor costs, raw material prices, and exchange rates. In terms of the CPI for regulated items, the new forecast supposes reductions in electricity prices at the end of the year, but the effects of indexation at higher inflation rates and the expected rises in fuel prices would continue to push this CPI group. Therefore, the new projection suggests that, in December, inflation would reach 11.3% and would decrease throughout 2023 and 2024, closing the year at 7.1% and 3.5%, respectively. These forecasts have a high level of uncertainty, due especially to the future behavior of international financial conditions, external price and cost shocks, the persistence of depreciation of the Colombian peso, the pace of adjustment of domestic demand, the indexation degree of nominal contracts, and the decisions that would be made regarding domestic fuel and electricity prices. Economic activity continues to surprise on the upside, and the projection of growth for 2022 rose from 6.9% to 7.9% but lowered for 2023 from 1.1% to 0.5%. Thus, excess demand is higher than estimated in the previous report, and it would diminish in 2023. Economic growth in the second quarterwas higher than estimated in July due to stronger domestic demand, mainly because of private consumption. Economic activity indicators for the third quarter suggest that the GDP would stay at a high level, above its potential, with an annual change of 6.4%, and 0.6% higher than observed in the second quarter. Nevertheless, these numbers reflect deceleration in its quarterly and annual growth. Domestic demand would show similar behavior, with a high value, higher than that of output. This can be explained partly by the strong behavior of private consumption and investment in machinery and equipment. In the third quarter, investment in construction would have continued with mediocre performance, which would still place it at levels lower than those observed before the pandemic. The trade deficit would have widened due to high imports with a stronger trend than that for exports. It is expected that, in the forecast horizon, consumption would decrease from its current high levels, partly as a consequence of tighter domestic financial conditions, lower repressed demand, higher exchange rate pressures on imported goods prices, and the deterioration of actual income due to the rise in inflation. Investment would continue to lag behind, without reaching the levels observed before the pandemic, in a context of high financing costs and high uncertainty. A lower projected behavior in domestic demand and the high levels of prices for oil and other basic goods that the country exports would be reflected in a reduction in the trade deficit. Due to all of this, economic growth for all of 2022, 2023, and 2024 would be 7.9%, 0.5%, and 1.3%, respectively. Expected excess demand (measured via the output gap) is estimated to be higher than contemplated in the previous report; it would diminish in 2023 and could turn negative in 2024. These estimates remain subject to a high degree of uncertainty related to global political tension, a rise in international interest rates, and the effects of this rise on demand and financial conditions abroad. In the domestic context, the evolution of fiscal policy as well as future measures regarding economic policy and their possible effects on macroeconomic imbalances in the country, among others, are factors that generate uncertainty and affect risk premia, the exchange rate, investment, and the country’s economic activity. Interest rates at several of the world’s main central banks continue to rise, some at a pace higher than expected by the market. This is in response to the high levels of inflation and their inflation expectations, which continue to exceed the targets. Thus, global growth projections are still being moderated, risk premia have risen, and the dollar continues to gain strength against other main currencies. International pressures on global inflation have heightened. In the United States, core inflation has not receded, pressured by the behavior of the CPI for services and a tight labor market. Consequently, the U.S. Federal Reserve continued to increase the policy interest rate at a strong pace. This rate is expected to now reach higher levels than projected in the previous quarter. Other developed and emerging economies have also increased their policy interest rates. Thus, international financial conditions have tightened significantly, which reflects in a widespread strengthening of the dollar, increases in worldwide risk premia, and the devaluation of risky assets. Recently, these effects have been stronger in Colombia than in the majority of its peers in the region. Considering all of the aforementioned, the technical staff of the bank increased its assumption regarding the U.S. Federal Reserve’s interest rate, reduced the country’s external demand growth forecast, and raised the projected trajectory for the risk premium. The latter remains elevated at higher levels than its historical average, within a context of high local uncertainty and of extensive financing needs from the foreign sector and the public sector. All of this results in higher inflationary pressures associated to the depreciation of the Colombian peso. The uncertainty regarding external forecasts and its impact on the country remain elevated, given the unforeseeable evolution of the conflict between Russia and Ukraine, of geopolitical tensions, and of the tightening of external financial conditions, among others. A macroeconomic context of high inflation, inflation expectations and forecasts above 3%, and a positive output gap suggests the need for contractionary monetary policy, compatible with the macroeconomic adjustment necessary to eliminate excess demand, mitigate the risk of unanchoring in inflation expectations, and guarantee convergence of inflation at the target. In comparison with the July report forecasts, domestic demand has been more dynamic, with a higher observed output level that surpasses the economy’s productive capacity. Headline and core inflation have registered surprising rises, associated with the effects of domestic and external price shocks that were more persistent than anticipated, with excess demand and indexation processes in some CPI groups. The country’s risk premium and the observed and expected international interest rates increased. As a consequence of this, inflationary pressures from the exchange rate rose, and in this report, the probability of the neutral real interest rate being higher than estimated increased. In general, inflation expectations for all terms and the bank’s technical staff inflation forecast for 2023 increased again and continue to stray from 3%. All of the aforementioned elevated the risk of unanchoring inflation expectations and could heighten widespread indexation processes that push inflation away from the target for a longer time. In this context, it is necessary to consolidate a contractionary monetary policy that tends towards convergence of inflation at the target in the forecast horizon and towards the reduction of excess demand in order to guarantee a sustainable output level trajectory. 1.2 Monetary policy decision In its September and October of 2022 meetings, Banco de la República’s Board of Directors (BDBR) decided to continue adjusting its monetary policy. In September, the BDBR decided by a majority vote to raise the monetary policy interest rate by 100 basis points (bps), and in its October meeting, unanimously, by 100bps. Therefore, the rate is at 11.0%. Boxes 1 Food inflation: a comparison with other countriesReportes, Boletines e Informes. 2023-01-02Informe de Política Monetaria -Item Open AccessMonetary Policy Report, January 2023(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models Department; Advisors and Associate Researcher with the Programming and Inflation Department; Forecasting Process Management Section1. Macroeconomic Summary In December, headline inflation (13.1%) and the average of the core inflation measures (10.3%) continued to trend upward, posting higher rates than those estimated by the Central Bank's technical staff and surpassing the market average. Inflation expectations for all terms exceeded the 3.0% target. In that month, every major group in the Consumer Price Index (CPI) registered higher-than-estimated increases, and the diffusion indicators continued to show generalized price hikes. Accumulated exchange rate pressures on prices, indexation to high inflation rates, and several food supply shocks would explain, in part, the acceleration in inflation. All of this is in a context of significant surplus demand, a tight labor market, and inflation expectations at different terms that exceed the 3.0% target. Compared to the October edition of the Monetary Policy Report, the forecast path for headline and core inflation (excluding food and regulated items: EFR) increased (Graphs 1.1 and 1.2), reflecting heightened accumulated exchange rate pressures, price indexation to a higher inflation rate (CPI and the producer price index: PPI), and the rise in labor costs attributed to a larger-than-estimated adjustment in the minimum wage. Nevertheless, headline inflation is expected to begin to ease by early 2023, although from a higher level than had been estimated in October. This would be supported initially by the slowdown forecast for the food CPI due to a high base of comparison, the end anticipated for the shocks that have affected the prices of these products, and the estimated improvement in external and domestic supply in this sector. In turn, the deterioration in real household income because of high inflation and the end of the effects of pent-up demand, plus tighter external and domestic financial conditions would contribute to diluting surplus demand in 2023 and reducing inflation. By the end of 2023, both headline and core (EFR) inflation would reach 8.7% and would be 3.5% and 3.8%, respectively, by December 2024. These forecasts are subject to a great deal of uncertainty, especially concerning the future behavior of international financial conditions, the evolution of the exchange rate, the pace of adjustment in domestic demand, the extent of indexation of nominal contracts, and the decisions taken regarding the domestic price of fuel and electricity. In the third quarter, economic activity surprised again on the upside and the growth projection for 2022 rose to 8.0% (previously 7.9%). However, it declined to 0.2% for 2023 (previously 0.5%). With this, surplus demand continues to be significant and is still expected to weaken during the current year. Annual economic growth in the third quarter (7.1 % SCA)1 was higher than estimated in October (6.4 % SCA), given stronger domestic demand specifically because of higher-than-expected investment. Private consumption fell from the high level witnessed a quarter earlier and net exports registered a more negative contribution than anticipated. For the fourth quarter, economic activity indicators suggest that gross domestic product (GDP) would have remained high and at a level similar to that observed in the third quarter, with an annual variation of 4.1%. Domestic demand would have slowed in annual terms, although at levels that would have remained above those for output, mainly because of considerable private consumption. Investment would have declined slightly to a value like the average observed in 2019. The real trade deficit would have decreased due to a drop in imports that was more pronounced than the estimated decline in exports. On the forecast horizon, consumption is expected to decline from current elevated levels, partly because of tighter domestic financial conditions and a deterioration in real income due to high inflation. Investment would also weaken and return to levels below those seen before the pandemic. In real terms, the trade deficit would narrow due to a lower momentum projection for domestic demand and higher cumulative real depreciation. In sum, economic growth for all of 2022, 2023, and 2024 would stand at 8.0%, 0.2% and 1.0%, respectively (Graph 1.3). Surplus demand remains high (as measured by the output gap) and is expected to decline in 2023 and could turn negative in 2024 (Graph 1.4). Although the macroeconomic forecast includes a marked slowdown in the economy, an even greater adjustment in domestic absorption cannot be ruled out due to the cumulative effects of tighter external and domestic financial conditions, among other reasons. These estimates continue to be subject to a high degree of uncertainty, which is associated with factors such as global political tensions, changes in international interest rates and their effects on external demand, global risk aversion, the effects of the approved tax reform, the possible impact of reforms announced for this year (pension, health, and labor reforms, among others), and future measures regarding hydrocarbon production. In 2022, the current account deficit would have been high (6.3 % of GDP), but it would be corrected significantly in 2023 (to 3.9 % of GDP) given the expected slowdown in domestic demand. Despite favorable terms of trade, the high external imbalance that would occur during 2022 would be largely due to domestic demand growth, cost pressures associated with high freight rates, higher external debt service payments, and good performance in terms of the profits of foreign companies.2 By 2023, the adjustment in domestic demand would be reflected in a smaller current account deficit especially due to fewer imports, a global moderation in prices and cost pressures, and a reduction in profits remitted abroad by companies with foreign direct investment (FDI) focused on the local market. Despite this anticipated correction in the external imbalance, its level as a percentage of GDP would remain high in the context of tight financial conditions. In the world's main economies, inflation forecasts and expectations point to a reduction by 2023, but at levels that still exceed their central banks' targets. The path anticipated for the Federal Reserve (Fed) interest rate increased and the forecast for global growth continues to be moderate. In the fourth quarter of 2022, logistics costs and international prices for some foods, oil and energy declined from elevated levels, bringing downward pressure to bear on global inflation. Meanwhile, the higher cost of financing, the loss of real income due to high levels of global inflation, and the persistence of the war in Ukraine, among other factors, have contributed to the reduction in global economic growth forecasts. In the United States, inflation turned out to be lower than estimated and the members of the Federal Open Market Committee (FOMC) reduced the growth forecast for 2023. Nevertheless, the actual level of inflation in that country, its forecasts, and expectations exceed the target. Also, the labor market remains tight, and fiscal policy is still expansionary. In this environment, the Fed raised the expected path for policy interest rates and, with this, the market average estimates higher levels for 2023 than those forecast in October. In the region's emerging economies, country risk premia declined during the quarter and the currencies of those countries appreciated against the US dollar. Considering all the above, for the current year, the Central Bank's technical staff increased the path estimated for the Fed's interest rate, reduced the forecast for growth in the country's external demand, lowered the expected path of oil prices, and kept the country’s risk premium assumption high, but at somewhat lower levels than those anticipated in the previous Monetary Policy Report. Moreover, accumulated inflationary pressures originating from the behavior of the exchange rate would continue to be important. External financial conditions facing the economy have improved recently and could be associated with a more favorable international context for the Colombian economy. So far this year, there has been a reduction in long-term bond interest rates in the markets of developed countries and an increase in the prices of risky assets, such as stocks. This would be associated with a faster-than-expected reduction in inflation in the United States and Europe, which would allow for a less restrictive course for monetary policy in those regions. In this context, the risks of a global recession have been reduced and the global appetite for risk has increased. Consequently, the risk premium continues to decline, the Colombian peso has appreciated significantly, and TES interest rates have decreased. Should this trend consolidate, exchange rate inflationary pressures could be less than what was incorporated into the macroeconomic forecast. Uncertainty about external forecasts and their impact on the country remains high, given the unpredictable course of the war in Ukraine, geopolitical tensions, local uncertainty, and the extensive financing needs of the Colombian government and the economy. High inflation with forecasts and expectations above 3.0%, coupled with surplus demand and a tight labor market are compatible with a contractionary stance on monetary policy that is conducive to the macroeconomic adjustment needed to mitigate the risk of de-anchoring inflation expectations and to ensure that inflation converges to the target. Compared to the forecasts in the October edition of the Monetary Policy Report, domestic demand has been more dynamic, with a higher observed level of output exceeding the productive capacity of the economy. In this context of surplus demand, headline and core inflation continued to trend upward and posted surprising increases. Observed and expected international interest rates increased, the country’s risk premia lessened (but remains at high levels), and accumulated exchange rate pressures are still significant. The technical staff's inflation forecast for 2023 increased and inflation expectations remain well above 3.0%. All in all, the risk of inflation expectations becoming unanchored persists, which would accentuate the generalized indexation process and push inflation even further away from the target. This macroeconomic context requires consolidating a contractionary monetary policy stance that aims to meet the inflation target within the forecast horizon and bring the economy's output to levels closer to its potential. 1.2 Monetary Policy Decision At its meetings in December 2022 and January 2023, Banco de la República’s Board of Directors (BDBR) agreed to continue the process of normalizing monetary policy. In December, the BDBR decided by a majority vote to increase the monetary policy interest rate by 100 basis points (bps) and in its January meeting by 75 bps, bringing it to 12.75% (Graph 1.5). 1/ Seasonally and calendar adjusted. 2/ In the current account aggregate, the pressures for a higher external deficit come from those companies with FDI that are focused on the domestic market. In contrast, profits in the mining and energy sectors are more than offset by the external revenue they generate through exports. Box 1 - Electricity Rates: Recent Developments and Indexation. Author: Édgar Caicedo García, Pablo Montealegre Moreno and Álex Fernando Pérez Libreros Box 2 - Indicators of Household Indebtedness. Author: Camilo Gómez y Juan Sebastián MariñoReportes, Boletines e Informes. 2023-06-20Monetary Policy Report - January 2023Item Open AccessMonetary Policy Report - January 2021(Banco de la República) Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office for Monetary Policy and Economic Information; Ospina-Tejeiro, Juan José; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Inflation Section; Cobo-Serna, Adolfo León; Caicedo-García, Edgar; Cote-Barón, Juan Pablo; Martínez-Cortés, Nicolás; Rojas, Carlos Daniel; Pulido-Mahecha, Karen L.; Macroeconomic Programming Section; Garavito-Acosta, Aarón Levi; Calderón-López, Luis Hernán; González, Camilo; Salazar-Diaz, Andrea; Galeano-Ramírez, Franky; Gaitán-Maldonado, Celina; Restrepo-Ángel, Sergio; Macroeconomic Modeling Department; Hamann-Salcedo, Franz Alonso; Macroeconomic Modeling Department; Pérez-Amaya, Julián Mauricio; Romero-Chamorro, José Vicente; Forero-Alvarado, Santiago; Moreno-Arias, Nicolás; De Castro-Valderrama, Marcela; Naranjo-Saldarriaga, Sara; Consultant and Researchers associated with the Macro-Economic Models Department; Guarín-López, AlexanderReportes, Boletines e Informes. 2021-03-03Monetary Policy Report - January 2021Item Open AccessMonetary Policy Report - April de 2021(Banco de la República) Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office for Monetary Policy and Economic Information; Ospina-Tejeiro, Juan José; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Inflation Section; Cobo-Serna, Adolfo León; Caicedo-García, Edgar; Cote-Barón, Juan Pablo; Martínez-Cortés, Nicolás; Rojas, Carlos Daniel; Pulido-Mahecha, Karen L.; Macroeconomic Programming Section; Garavito-Acosta, Aarón Levi; Calderón-López, Luis Hernán; González, Camilo; Salazar-Diaz, Andrea; Galeano-Ramírez, Franky; Forecasting Process Management Section; Gaitán-Maldonado, Celina; Restrepo-Ángel, Sergio; Forecasting Section; Hamann-Salcedo, Franz Alonso; Macroeconomic Modeling Department; Pérez-Amaya, Julián Mauricio; Romero-Chamorro, José Vicente; Forero-Alvarado, Santiago; Moreno-Arias, Nicolás; De Castro-Valderrama, Marcela; Naranjo-Saldarriaga, Sara; Consultant and Researchers associated with the Macro-Economic Models Department; Guarín-López, AlexanderReportes, Boletines e Informes. 2021-07-07Monetary Policy Report - April 2021Item Open AccessMonetary Policy Report - July 2023(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentReportes, Boletines e Informes. 2023-09-06Monetary Policy Report - July 2023Item Open AccessMonetary Policy Report - April 2023(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentInflation would peak in March and start to gradually decline as of the second quarter of 2023, bringing inflation back to the 3% target over the next two years. In March 2023, inflation continued to increase, reaching 13.3%. This increase is mainly explained by higher-than-expected growth of perishable food prices, a demand that remains persistently strong, the high inflation of 2022 being used in many cases to calculate price adjustments in 2023, and the aggregate effects of exchange rate increases in recent months, among others. Starting in the second quarter, inflation would begin to fall and this decline would continue over the next two years. This would occur as food price increases gradually abate, exchange rate pressures on prices would moderate, and import logistics costs and prices of imported inputs, goods and food would continue to temper. Several factors support this expected inflation decline, including lower cost increases measured by the producer price index, decreases in certain measures of inflation expectations of financial market operators or those who monitor the behavior of the economy, and lower observed increases in food prices. The cumulative monetary policy interest rate adjustments will contribute to lower excess spending and reduce inflation. The economy would maintain the high levels of activity already achieved, albeit with lower growth rates, which would contribute to reducing inflation. The economy is growing at a lower pace than in the previous year, which is normal after two years of rapid growth that led to high output levels and a significant decline in the unemployment rate, which is at its lowest level since 2018. The current high production levels are the result of high spending by both households and businesses (consumption and investment). This spending is excessive relative to the country's income, reflected in the strong growth of imports and the large external deficit seen in 2022. The technical staff forecasts economic growth of 1% in 2023 and 1% in 2024, mainly due to moderate consumption and investment. These low growth rates would lessen inflation and the external deficit over the next two years. A heightened policy interest rate is required to ensure price stabilization and contribute to the sustainable growth of the Colombian economy. Accordingly, Banco de la República has adjusted its monetary policy interest rate in response to the high demand and inflation. From September 2021 to April 2023, the Board of Directors raised the monetary policy interest rate from 1.75% to 13.25%.Reportes, Boletines e Informes. 2023-06-21Monetary Policy Report - April 2023Item Open AccessMonetary Policy Report - July 2022(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentStarting in October 2019, the quarterly Inflation Report produced by the technical staff of the Central Bank will be known as the Monetary Policy Report. The document, which is used for the technical staff´s monetary policy recommendation, will be published on the working day after the meeting of the BDBR in January, April, July, and October, simultaneously with the Board minutes.Reportes, Boletines e Informes. 2022-10-12Informe de Política Monetaria - July 2022Item Open AccessMonetary Policy Report - January 2022(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentStarting in October 2019, the quarterly Inflation Report produced by the technical staff of the Central Bank will be known as the Monetary Policy Report. The document, which is used for the technical staff´s monetary policy recommendation, will be published on the working day after the meeting of the BDBR in January, April, July, and October, simultaneously with the Board minutes.Reportes, Boletines e Informes. 2022-03-23Monetary Policy Report - January 2022Item Open AccessMonetary Policy Report - October 2024(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionInflation continues to decline, although it is still above the 3% target. Monetary policy measures and correcting factors that pushed prices up are helping inflation to continue approaching the target. Economic activity is recovering to a sustainable level, unemployment has decreased, and the external deficit continues to reduce. The monetary policy interest rate is compatible with inflation being close to the target by the end of 2025 and with the gradual recovery of economic growth. In the third quarter, headline inflation continued to decrease and is expected to continue doing so gradually to reach 3.0% by the end of 2025. In September, headline inflation decreased more than expected, standing at 5.8%, and it is projected to be 5.3% by the end of 2024. The decrease in the inflation projection is mainly due to the improvement in the supply of processed foods, lower adjustments in electricity and fuel prices, and declining international costs that favored the behavior of some goods prices. Service prices, particularly rents and food away from home, showed a slower pace of deceleration due, in part, to the effect of indexation. Inflation expectations show a downward trend over time, reinforcing a decreasing dynamic of inflation towards the target by the end of 2025. The expected decrease in inflation would continue to reflect the accumulated effects of monetary policy decisions and the correction of factors that pushed prices up in the past. The forecasts continue to face high uncertainty related to exchange rate variations, which are at the same time conditioned by volatility in international financial conditions and the challenges of fiscal adjustment in Colombia. Other relevant uncertainty factors are the pace of deceleration in the prices of some services such as rents, the behavior of food prices and some regulated goods and services, and the increase in the minimum wage for next year. Economic activity continues to show a recovery path compatible with the convergence of inflation to the 3% target. In 2024 and 2025, the Colombian economy is expected to grow by 1.9% and 2.9%, respectively. The Colombian economy has been gaining momentum throughout the year, a trend that is expected to continue over the course of the year. This recovery is mainly due to higher household consumption, supported by less restrictive monetary policy, better disposable income, and lower financial burden. A greater contribution from public civil works also explains the recovery. By 2025, the economy is expected to continue strengthening and reach a level close to its productive capacity, a behavior compatible with the convergence of inflation to the 3% target. This behavior would occur in the context of less restrictive domestic and foreign monetary policy. The unemployment rate remains low compared to the past, while employment has increased. Economic recovery and labor market resilience suggest that monetary policy decisions have contributed to sustainable growth and a reduction in inflation. Volatility in international financial conditions and the challenges of fiscal adjustment in Colombia are uncertainty factors for economic activity performance. The downward trend in inflation and its expectations has allowed the continued lowering of the monetary policy interest rate, which now stands at 9.75%. At its October meeting, the Board of Directors of the Banco de la República decided, by majority, to reduce the monetary policy interest rate by 50 basis points (bp), accumulating a reduction of 350 bp since December 2023. However, inflation and some of its expectations remain above the target, indicating the need to maintain a still contractionary monetary policy stance to bring inflation to its 3% target. Monetary policy decisions continue to support the sustainable recovery of economic growth and maintain the necessary prudence in light of persistent risks regarding inflation behavior. Box 1 - Evolución reciente del IPC de arriendos en Colombia (only in Spanish) Cárdenas, Julián; Rodríguez, Nicol Descargar PDF Box 2 - Expectativas de inflación y su grado de anclaje: ¿qué se puede inferir de las expectativas derivadas del mercado de deuda pública en Colombia? (only in Spanish) Muñoz-Martínez, Jonathan Alexander; Parra, Daniel Descargar PDF Box 3 - Comportamiento reciente de los ingresos externos por remesas recibidos en Colombia (only in Spanish) Sandoval-Herrera, Diego; Hernández-Peñaloza, MateoReportes, Boletines e Informes. 2024-11-06Informe de Política Monetaria - Octubre 2024Item Open AccessInflation Report - June 2013(Banco de la República) Technical Office; Vargas-Herrera, Hernando; Economic Studies; Toro-Córdoba, Jorge Hernán; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Inflation Section; Cobo-Serna, Adolfo León; Amador-Torres, Juan Sebastián; Ávila-Montealegre, Oscar; Caicedo-García, Edgar; Cárdenas-Hurtado, Camilo Alberto; Granados-Castro, Joan Camilo; Parra-Amado, DanielDurante el primer semestre de 2013 el comportamiento de la demanda externa fue algo más débil de lo previsto. En los Estados Unidos, nuestro principal socio comercial, el mayor gasto privado está siendo parcialmente contrarrestado por la consolidación fiscal, lo cual ha llevado a una leve disminución en la proyección del crecimiento de ese país. La contracción europea persiste, mientras que en Japón se observa una rápida recuperación de la actividad productiva. La expansión de buena parte de las economías emergentes de Asia y América Latina continúa siendo robusta, aunque menor a la prevista.Reportes, Boletines e Informes. 2013-06-06Inflation Report - June 2013Item Open AccessMonetary Policy Report, January 2024(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Forecasting Process Management Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionReportes, Boletines e Informes. 2024-03-26Informe de Política Monetaria - January 2024Item Open AccessMonetary Policy Report - July de 2021(Banco de la República) Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office for Monetary Policy and Economic Information; Ospina-Tejeiro, Juan José; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Inflation Section; Cobo-Serna, Adolfo León; Caicedo-García, Edgar; Cote-Barón, Juan Pablo; Martínez-Cortés, Nicolás; Rojas, Carlos Daniel; Pulido-Mahecha, Karen L.; Macroeconomic Programming Section; Garavito-Acosta, Aarón Levi; Calderón-López, Luis Hernán; González, Camilo; Salazar-Diaz, Andrea; Galeano-Ramírez, Franky; Forecasting Process Management Section; Gaitán-Maldonado, Celina; Restrepo-Ángel, Sergio; Gomez-Beltran, Edward; Mora-Arbeláez, Tatiana Andrea; Forecasting Section; Hamann-Salcedo, Franz Alonso; Macroeconomic Modeling Department; Pérez-Amaya, Julián Mauricio; Romero-Chamorro, José Vicente; Forero-Alvarado, Santiago; Moreno-Arias, Nicolás; De Castro-Valderrama, Marcela; Naranjo-Saldarriaga, Sara; Consultant and Researchers associated with the Macro-Economic Models Department; Guarín-López, Alexander; Méndez-Vizcaíno, Juan Camilo; Anzola, César; Grajales-Olarte, AndersonReportes, Boletines e Informes. 2021-10-07Monetary Policy Report - July de 2021Item Open AccessMonetary Policy Report - January 2025(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionWhile inflation fell significantly in 2024, it continues above the 3% target. However, monetary policy measures and corrections in particular factors that exert upward price pressures have helped direct inflation toward the objective. Economic activity continues to recover and is expected to continue growing. The monetary policy interest rate is compatible with the convergence of inflation to its 3% target and the gradual recovery of economic growth toward more sustainable levels. Inflation has fallen significantly, from 9.3% in 2023 to 5.2% in 2024. During this year and into the next, inflation would continue to decline towards the inflation target. In the last quarter of 2024, inflation continued its downward path, ending the year at 5.2% with the help of smaller increases in the prices of some regulated goods and services (particularly utilities and fuel prices) and food away from home. Despite inflation’s significant decline throughout 2024, including in the last quarter and the positive performance of goods and food, headline inflation ended the year above the target. Monetary policy actions and the adjustment in economic activity contributed to inflation’s decline; however, indexation to a high inflation rate in 2023 and labor cost pressures constrained a more marked drop. Over the next two years, both headline and core inflation are expected to gradually approach the 3% target. The indexation of certain goods and services prices to lower inflation and the cumulative effects of monetary policy decisions would assist in steering inflation closer to the target. Nevertheless, inflationary pressures from the recent minimum wage increase and those resulting from the exchange rate’s behavior in a environment of high global uncertainty, could make the reduction of inflation slower than projected. Economic activity continues on a path of gradual recovery, helping inflation remain close to the 3% target and encouraging a stable labor market environment. Colombia’s economy continued to strengthen in the second half of 2024, backed by strong household consumption and signs of investment recovery. Increased spending on machinery and equipment, civil works construction, and the recovery of inventories would driving the improvement seen in investment. Private consumption (household consumption) has grown, supported by lower interest rates, improved access to credit, and increased disposable income. Economic activity is projected to grow 1.8% in 2024 and would continue to accelerate to 2.6% in 2025 and 3.4% in 2026, attributed to a monetary policy that would gradually ease as inflation falls. Consequently, the economy is foreseen to reach a level close to its productive capacity by 2026. The unemployment rate has decreased and is at low levels compared to its historical performance, concurrent with growing employment levels. Additionally, improvements in salaried employment have led to additional reductions in the informality ratios. Monetary policy interest rate reductions have been reflected in significant decreases in financial market interest rates, contributing to the the gradual recovery of credit. Since the end of 2023, the Board of Directors of Banco de la República has reduced the monetary policy interest rate by 375 basis points to its current level of 9.5%. The latter is compatible with inflation converging to its 3% target over the next two years and the gradual recovery of economic activity to sustainable levels. At its December meeting, the Board of Directors of Banco de la República decided by majority vote to lower the monetary policy interest rate by 25 basis points and concurred at its January meeting to maintain the benchmark rate at 9.5%. All monetary policy decisions have contributed to reducing annual inflation amid a backdrop of gradual improvements in economic activity and a stable labor market. The impact of the minimum wage increase on prices and the exchange rate behavior in an environment of high external and fiscal uncertainty are significant factors guiding inflation’s future trajectory. Consequently, information in this context will help define the future monetary rate decisions that will allow inflation to continue converging toward the 3% target. In this sense, monetary policy interest rate decisions continue to support the sustainable recovery of economic growth and maintain the prudence required given the continuing risks surrounding the future behavior of inflation. Box 1: Instantaneous infation in Colombia Edgar Caicedo García Wilmer Osvaldo Martínez Rivera Juan Camilo Vallejo Peña Gabriel Adolfo Garavito Plata Box 2: Estimated effects of the minimum wage on infation in Colombia Nicolás Martínez-Cortés Sergio Restrepo-Ángel Box 3: Energy demand as an indicator of industrial activity in Colombia Diana Cortázar Nicolás VillanuevaReportes, Boletines e Informes. 2025-03-17Monetary Policy Report - January 2025Item Open AccessMonetary Policy Report - October 2020(Banco de la República) Office of the Deputy Technical Governor; Vargas-Herrera, Hernando; Office for Monetary Policy and Economic Information; Ospina-Tejeiro, Juan José; Programming and Inflation Department; Huertas-Campos, Carlos Alfonso; Inflation Section; Cobo-Serna, Adolfo León; Caicedo-García, Edgar; Martínez-Cortés, Nicolás; Rojas, Carlos Daniel; Pulido-Mahecha, Karen L.; Macroeconomic Programming Section; Garavito-Acosta, Aarón Levi; Calderón-López, Luis Hernán; González, Camilo; Salazar-Diaz, Andrea; Advisors and Associate Researcher with the Programming and Inflation Department; Gaitán-Maldonado, Celina; Restrepo-Ángel, Sergio; Macroeconomic Modeling Department; Hamann-Salcedo, Franz Alonso; Macroeconomic Modeling Department; Pérez-Amaya, Julián Mauricio; Romero-Chamorro, José Vicente; Forero-Alvarado, Santiago; Moreno-Arias, Nicolás; De Castro-Valderrama, Marcela; Naranjo-Saldarriaga, Sara; Consultant and Researchers associated with the Macro-Economic Models Department; Guarín-López, AlexanderReportes, Boletines e Informes. 2021-02-02Monetary Policy Report - October 2020Item Open AccessMonetary Policy Report - October 2021(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Forecasting Process Management Section; Forecasting Section; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentReportes, Boletines e Informes. 2021-12-16Monetary Policy Report - October of 2021Item Open AccessMonetary Policy Report, October 2023(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Forecasting Process Management Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionReportes, Boletines e Informes. 2023-12-21Informe de Política Monetaria - October 2023Item Open AccessMonetary Policy Report - April 2022(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models Department; Programming and Inflation DepartmentStarting in October 2019, the quarterly Inflation Report produced by the technical staff of the Central Bank will be known as the Monetary Policy Report. The document, which is used for the technical staff´s monetary policy recommendation, will be published on the working day after the meeting of the BDBR in January, April, July, and October, simultaneously with the Board minutes.Reportes, Boletines e Informes. 2022-06-30Monetary Policy Report - April 2022Item Open AccessMonetary Policy Report - July 2024(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Inflation Section; Macroeconomic Programming Section; Advisors and Associate Researcher with the Programming and Inflation Department; Macroeconomic Modeling Department; Consultant and Researchers associated with the Macro-Economic Models DepartmentReportes, Boletines e Informes. 2024-08-02Informe de Política Monetaria - July 2024Item Open AccessMonetary Policy Report - April 2025(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionIn March, inflation decreased - although less than anticipated - and remains above the 3% target. Over the next two years, it is expected that inflation will continue to decline, converging gradually toward the target. In March, annual headline inflation stood at 5.1% - slightly above the forecast - due to upward surprises in regulated items such as gas and urban transportation, as well as increases in processed foods. The decline in inflation is largely attributed to the cumulative effects of a still-restrictive monetary policy stance, indexation to lower inflation rates, and the moderation of international prices for certain goods and raw materials. However, inflation remains above 3% due to continued significant price adjustments across all baskets, except for the goods group excluding food and regulated items. Core inflation, which excludes more volatile items such as food and regulated items, continued to decline, falling slightly more than presumed to 4.9% in March. For the remainder of 2025 and into 2026, headline inflation is expected to continue its downward trend amid a recovery in economic activity, albeit with excess productive capacity, price indexation to lower inflation rates, and moderate exchange rate pressures. Under these conditions, inflation is projected to converge to the 3% target by yearend 2026. The inflation forecast remains subject to high uncertainty, particularly due to the behavior of prices for some regulated services and exchange rate dynamics in a context of significant fiscal challenges. This uncertainty has recently increased due to potential impacts stemming from changes in U.S. trade policy. In the first quarter of 2025, economic activity would have recovered more than expected; however, it faces future adverse shocks originating from the external environment. In 2024, the Colombian economy grew by 1.7%, broadly in line with projections. This performance occurred against a backdrop of declining interest rates, lower (though still above-target) inflation, and increased household disposable income. Available information for the first quarter of 2025 indicates stronger-than-expected economic activity, driven by higher growth in private consumption and investment. As a result, GDP is estimated to have grown by 2.5% year-on-year during the quarter. For the remainder of the year, it is anticipated that higher incomes from higher prices of certain agricultural products such as coffee, robust remittance inflows, and strong foreign tourism will bolster economic activity. The latter would be complemented by a gradual recovery in credit amid declining real interest rates and credit risks. However, recent tariff increases in the United States and uncertainty about future trade policy have dampened global economic activity, raised global risk perceptions, and increased the cost of external financing, factors that are expected to negatively affect Colombia’s exports of goods and services. Considering the stronger-than-expected growth in the first quarter and the adverse external shock linked to global trade developments, the economic growth forecast for 2025 remains at 2.6%, while the projection for 2026 has been revised downward to 3.0%. The unemployment rate continues to decline and remains at low levels, while employment has increased significantly, particularly in the non-salaried segment, leading to a rise in the informality rate. The Board of Directors of Banco de la República (JDBR) continues to adopt a cautious approach to monetary policy, consistent with the aim of guiding inflation toward the 3% target and supporting a sustainable recovery in economic activity. At its March meeting, the Board of Directors of Banco de la República (JDBR) opted to lower the monetary policy interest rate to 9.25%, following a decision to keep it unchanged in January. Although inflation has declined, it remains above the target and is subject to significant risks, warranting a cautious approach to interest rate decisions to ensure a sustained convergence of inflation toward the 3% target. Domestic fiscal challenges and external uncertainty pose significant upside risks to Colombia’s external financing costs, exchange rate, and inflation. These factors underscore the need for a prudent monetary policy stance to support the path of inflation to the target and the sustainable recovery of economic activity. Box 1 - De la recuperación al ajuste: dinámica reciente de los sectores productivos en Colombia (only in Spanish) Barbosa-Buitrago, Johanna; Pulido-Mahecha, Karen L. Descargar PDF Box 2 - Evaluación del error de pronóstico macroeconómico para 2024 (only in Spanish) Muñoz-Martínez, Jonathan Alexander; Pérez-Amaya, Julián MauricioReportes, Boletines e Informes. 2025-05-06Monetary Policy Report - April 2025Item Open AccessMonetary Policy Report - April 2024(Banco de la República) Office of the Deputy Technical Governor; Office for Monetary Policy and Economic Information; Programming and Inflation Department; Inflation Section; Macroeconomic Programming Section; Forecasting Process Management Section; Macroeconomic Modeling Department; Forecasting Section; Models and Capacities Development SectionReportes, Boletines e Informes. 2024-05-03Monetary Policy Report - April 2024